Frequently Asked Questions
Q. What is a debt investment?
A. This is an investment in the financing of property or some other endeavor, in which the investor is in essence loaning funds and does not own the property or endeavor, nor share in its profits. If property is pledged, or mortgaged, as security for the loan, the investor may claim the property to repay the debt if the borrower defaults on payments.
Q. Does a debt investment offer more security than an equity investment?
A. We believe that it does, but it's best to consult with your financial advisor. With an equity investment, you purchase a stake in the company; if the company were to go bankrupt, you would lose your investment. Also, the value of the investment can decrease in value. With a debt investment, you're making a loan to the company, and the company is under a contract (called a Debt Investment Agreement) requiring them to repay the full face value of the contract plus all interest owed. In addition, the company pledges their asset towards these investments, so if the company defaults, you'll have the legal right to claim these assets to regain your investment capital.
Q. Should I diversify?
A. Even if you're partial to a particular investment, it's always wise to diversify. This is even more important if you're over 40 years old, as you'll need to make sure your investment capital is as protected as possible. While we will gladly offer our advice, we encourage you to sit down with a fee-based Certified Financial Planner to create an individualized plan. We would even recommend investing a portion of your funds in an FDIC-insured product.
Q. I diversified with many kinds of stocks and mutual funds, but I'm still losing money. What should I do?
A. It's a good idea to spread your portfolio among multiple investment vehicles, such as Stocks, T-Bills, Municipal Bonds, Gold, High Risk, CD/FDIC insured, and real estate investments (such as the ones from CEP). Again, it's best to create a custom plan by consulting with a qualified Certified Financial Planner. http://www.cfp.net/search/
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Q. In the current market conditions, is it a bad time to invest in Commercial Mortgage Notes?
A. There are a number of factors that played into the mortgage industry collapse, but the main reason was because many of the loans granted were not sensible. Many banks and lenders loaned consumers 97%, 100%, and even up to 125% of the value of their property, even if they had weak or bad credit. In the event of even the slightest market shift, the investor had zero (or negative) equity in their property. The only way to achieve long-term growth in the mortgage industry is to ensure a healthy level of equity. This puts you in a much better position if you ever need to foreclose, allowing you to recoup your capital and interest owed. Also, the borrower will have a vested interest in the property, because if they lose it, they'll also use the equity they've built. For instance, If you have a $500,000 building and you let it default to us, the borrower could lose as much $175,000. Finally, our mortgages are short-term bridge loans, so our risk is not as affected by long-term market conditions. We only loan on income-producing commercial and multi-family properties, with a maximum LTV of 65%.
Q. With the problematic banking industry, what happens if your bank (Bank of America) were to collapse? Would CEP have financial problems if the funds were lost?
A. Currently, FDIC will cover all of our money with Bank of America. Banks that participate in the FDIC's Transaction Account Guarantee Program (TAGP) fully insure the accounts, regardless of the actual amount in each account, through 12/31/09. All business accounts in non-interest bearing checking accounts are currently protected 100%. The accounting department can make online transfers between accounts at any time. If there was trouble at Bank of America, our management team would move funds into the operations accounts, where the funds would be fully insured.
Q. Can I go online to see how my account is doing?
A. Yes. All investors can log in 24 hours a day, 7 days a week to view their investment details. We update the account information once a month.
Q. Why should I invest in tax liens with CEP? Can't I just go and buy tax liens on my own?
A. Yes, tax lien auctions are open to the public and you can buy them yourself. But it can be extremely time-consuming to learn the business, research properties, and attend the auctions. We take care of all of the legwork for you, while offering a handsome rate of return and also allowing you to benefit from potential windfall profits. If you do want to purchase tax liens yourself, we offer an excellent training seminar with very exclusive access. Click here to learn more.
Q. What happens if the IRS places a lien against a property for which CEP holds a tax lien or deed?
A. When property is sold at public auction and the IRS holds a tax lien on the property, the United States has the right of redemption for 120 days from the date of the sale (26 USC Sec. 3712(g) and 7425(d)). The IRS will pay the actual amount paid by the bidder, plus interest at 6% per annum from the date of sale, plus the expenses of the sale that exceed any income received from the property.
Q. Do you assign a tax lien or mortgage note to me?
A. No. All funds are pooled together to minimize risk. If we were to assign a particular investment to the investor and that investment had problems, the investor would lose the value they had accrued.
Q. How do I know Commercial Equity Partners is legitimate?
A. You can contact the Better Business Bureau in Chicago, Washington D.C., and Wilmington, Delaware to verify our solid business reputation. You can also visit the SEC.gov website and search our records of filings. We have been awarded a SiteSafe seal from Network Solutions, and have been authorized by American Airlines, Delta, and United to award miles towards trips on American Airlines. You can also contact Dun & Bradstreet to learn about our firm. We have a long-standing relationship with Equity Trust Company. Even though they are not permitted to provide any recommendations for our company, they can verify our company's information.
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